Firan Technology Group Corporation ("FTG" or "the Corporation") Announces Third Quarter 2018 Financial Results

TORONTO, Oct. 10, 2018 (GLOBE NEWSWIRE) -- Firan Technology Group Corporation (TSX:FTG) today announced financial results for the third quarter 2018.

• Achieved record third quarter sales of $25.0M, an increase of 31% over Q3 2017
• Grew Circuits segment by 22% over Q3 last year
• Grew Aerospace segment by 50% over Q3 last year
• Achieved $2.7M EBITDA, an increase of $0.9M over Q3 last year
• Grew Q3 2018 net income by 320% over same period last year

“The third quarter of 2018 came in as expected for the summer months, which typically experience a drop in sales from Q2 due to higher vacations and fewer production days,” stated Brad Bourne, President and Chief Executive Officer. He added, “Sales and profitability were up dramatically from Q3 last year again demonstrating the transition activities are mostly behind us.  We will continue to work on managing transition and one-time costs in our Chatsworth operations.”

Third Quarter Results: (three months ended August 31, 2018 compared with three months ended September 1, 2017)

		Q3 2018			Q3 2017
Sales	$	25,001,000		$	19,144,000
Gross Margin		5,909,000			5,199,000
Gross Margin (%)		23.6	%		27.2	%
Operating Earnings (1):		2,580,000			2,278,000
• Net R&D Investment		979,000			1,668,000
• Foreign Exchange Loss (Gain)		(34,000	)		(272,000	)
• Recovery of Investment Tax Credits		(205,000	)		(166,000	)
• Amortization of Intangibles		266,000			273,000
Net Earnings before Tax		1,574,000			775,000
• Current Tax Expense		15,000			14,000
• Deferred Tax Expense		916,000			623,000
• Non-controlling Interests		(4,000	)		(16,000	)
Net Earnings After Tax	$	647,000		$	154,000
Earnings per share
- basic	$	0.03		$	0.01
- diluted	$	0.03		$	0.01

Year-to-Date Results: (nine months ended August 31, 2018 compared with nine months ended September 1, 2017)

		YTD 2018			YTD 2017
Sales	$	81,407,000		$	71,829,000
Gross Margin		17,998,000			17,838,000
Gross Margin (%)		22.1	%		24.8	%
Operating Earnings (1):		7,720,000			7,876,000
• Restructuring		195,000			-
• Net R&D Investment		3,200,000			4,924,000
• Foreign Exchange Loss (Gain)		(164,000	)		(229,000	)
• Recovery of Investment Tax Credits		(568,000	)		(495,000	)
• Amortization of Intangibles		783,000			840,000
Net Earnings before Tax		4,274,000			2,836,000
• Current Tax Expense		55,000			(10,000	)
• Deferred Tax Expense		2,591,000			1,802,000
• Non-controlling Interests		(21,000	)		(34,000	)
Net Earnings After Tax	$	1,649,000		$	1,078,000
Earnings per share
- basic	$	0.07		$	0.05
- diluted	$	0.07		$	0.04

1. Operating Earnings is not a measure recognized under International Financial Reporting Standards (“IFRS”).  Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating Operating Earnings may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Business Highlights

FTG accomplished many goals in the third quarter of 2018 that continue to improve the Corporation and position it for the future, including:

• Began shipments to Flight Safety International for the KC-46 simulator program
• Shipped first set of the redesigned cockpit control devices for the third test aircraft for the C919 program in China
• Completed qualification testing of the cursor control device for a helicopter program and are progressing through Transport Canada approval
• Completed qualification testing of a cockpit power supply for the LE-700 training aircraft in China
• Achieved sales resulting from the 2016 acquisitions of $5.4M versus our target of $5.5M
• Received Authorization to Proceed on a new military helicopter simulation program with an expected value between $1-2M USD
• Received our first ever patent for High Temperature Rigid Flex circuit board technology in the UK
• Won a contract to develop cockpit panels for the Orion manned spacecraft being developed for NASA
• Completed our first robotic automation project including Industry 4.0 technology at our Circuits Toronto facility

For FTG, overall sales increased by $5.9M or 30.6% from $19.1M in Q3 2017 to $25.0M in Q3 2018.  Both the Circuits and Aerospace segments contributed to the growth.  Also contributing to the growth was the weakening of the Canadian dollar by 2.5 cents in Q3 this year compared to the same period last year.  For the year-to-date, sales were up $9.6M or 13.3% due to the above items plus the one time revenue recognition of $5M from the C919 program in Q1 2018. 

The Circuits Segment sales were up $3.0M or 22.1% in Q3 2018 versus Q3 2017.  On a year-to-date basis, Circuits sales were up by $1.3M or 2.8%. 

For the Aerospace segment, sales in Q3 2018 were $8.6M compared to $5.7M in the same quarter last year resulting in a 50.6% growth rate. Year-to-date sales were up $8.3M or 31.4% in the Aerospace segment.

Gross margins in Q3 2018 were up $0.7M compared to Q3 2017.  The benefit of increased sales and lower costs were partially offset by a $0.95M inventory provision in Aerospace Chatsworth against inventory acquired in the two acquisitions in 2016.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for Q3 2018 was $2.7M and $9.2M for the trailing twelve months.

The following table reconciles EBITDA⁽²⁾  to the net earnings for Q3, 2018 and trailing twelve months.

		Q3 2018		Trailing Twelve Months
Net earnings	$	643,000	$	1,791,000
Add:
Interest		139,000		547,000
Income taxes/ITC		726,000		2,414,000
Depreciation/Amortization		1,166,000		4,483,000
EBITDA	$	2,674,000	$	9,235,000

2. EBITDA is not a measure recognized under International Financial Reporting Standards (“IFRS”).  Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating EBITDA may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Net profit after tax at FTG in Q3 2018 was $0.6M compared to a net profit of $0.1M in Q3 2017.  Q3 2018 had higher sales, lower R&D spending, offset by an inventory provision increase of $0.95M.    

The Circuits segment net earnings before corporate and interest and other costs was $3.0M in Q3 2018 compared to $1.7M in Q3 2017.

The Aerospace net earnings before corporate and interest and other costs in the quarter was ($0.7M) versus ($1.3M) in Q3 2017. Q3 2018 had an inventory provision increase of $0.95M.

As at August 31, 2018, the Corporation’s net working capital was $28.5M, an increase of $4.1M over year end 2017.  Higher accounts receivables, inventory and lower bank debt and lower accounts payable was offset by higher customer deposits.

Net debt to EBITDA, was 0.9:1 for the trailing 12 month period.

The Corporation will host a live conference call on Thursday, October 11, 2018 at 8:30 am (EDT) to discuss the results of Q3 2018.

Anyone wishing to participate in the call should dial 647-427-2311 or 1-866-521-4909 and identify that you are calling to participate in the FTG conference call. The Chairperson is Mr. Brad Bourne.  A replay of the call will be available until October 25, 2018 and will be available on the FTG website at www.ftgcorp.com.  The number to call for a rebroadcast is 416-621-4642 or 1-800-585-8367, Conference ID 8565389.       

ABOUT FIRAN TECHNOLOGY GROUP CORPORATION

FTG is an aerospace and defense electronics product and subsystem supplier to customers around the globe.  FTG has two operating units:

FTG Circuits is a manufacturer of high technology, high reliability printed circuit boards.  Our customers are leaders in the aviation, defense, and high technology industries.  FTG Circuits has operations in Toronto, Ontario, Chatsworth, California and a joint venture in Tianjin, China.

FTG Aerospace manufactures illuminated cockpit panels, keyboards and sub-assemblies for original equipment manufacturers of aerospace and defense equipment.   FTG Aerospace has operations in Toronto, Ontario, Chatsworth, California, Fort Worth, Texas and Tianjin, China.

The Corporation's shares are traded on the Toronto Stock Exchange under the symbol FTG.

FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements.  These forward-looking statements are related to, but not limited to, FTG’s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.  Such statements are based on the current expectations of management of the Corporation and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the Corporation’s industry, generally.  The preceding list is not exhaustive of all possible factors.  Such forward-looking statements are not guarantees of future performance and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation.  The reader is cautioned to consider these and other factors carefully when making decisions with respect to the Corporation and not place undue reliance on forward-looking statements. Other than as may be required by law, FTG disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

For further information please contact:

Bradley C. Bourne, President and CEO
Firan Technology Group Corporation
Tel: (416) 299-4000 x314
bradbourne@ftgcorp.com

Melinda Diebel, Vice President and CFO
Firan Technology Group Corporation
Tel:(416) 299-4000 x264
melindadiebel@ftgcorp.com

Additional information can be found at the Corporation’s website www.ftgcorp.com



FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Balance Sheets
(Unaudited)	August 31,			November 30,
(in thousands of Canadian dollars)	2018			2017
ASSETS
Current assets
Cash	$	2,481		$	2,752
Accounts receivable		18,477			17,983
Taxes receivable		134			209
Inventories		26,430			25,079
Prepaid expenses		1,242			1,506
		48,764			47,529
Non-current assets
Plant and equipment, net		11,576			12,222
Deferred income tax assets		394			395
Investment tax credits receivable		5,043			6,420
Deferred development costs		268			681
Intangible assets and other assets, net		3,207			3,768
Total assets	$	69,252		$	71,015
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness	$	2,611		$	6,444
Accounts payable and accrued liabilities		12,779			13,341
Provisions		523			390
Customer deposits		2,397			1,268
Current portion of long-term bank debt		1,935			1,726
		20,245			23,169
Non-current liabilities
Long-term bank debt		5,840			6,040
Deferred tax payable		1,810			1,696
Total liabilities		27,895			30,905
Equity
Retained earnings	$	10,461		$	8,812
Accumulated other comprehensive income		(412	)		187
		10,049			8,999
Share capital
Common shares		19,323			19,295
Preferred shares		2,218			2,218
Contributed surplus		8,598			8,384
Total equity attributable to FTG's shareholders		40,188			38,896
Non-controlling interest		1,169			1,214
Total equity		41,357			40,110
Total liabilities and equity	$	69,252		$	71,015

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings
	Three months ended								Nine months ended
(Unaudited) (in thousands of Canadian dollars, except per share amounts)	August 31, 2018				September 01, 2017				August 31, 2018				September 01, 2017
Sales	$	25,001			$	19,144			$	81,407			$	71,829
Cost of sales
Cost of sales		18,304				13,253				61,142				51,908
Depreciation of plant and equipment		788				692				2,267				2,083
Total cost of sales		19,092				13,945				63,409				53,991
Gross margin		5,909				5,199				17,998				17,838
Expenses
Selling, general and administrative		3,156				2,787				9,757				9,509
Research and development costs		1,034				1,723				3,365				5,089
Recovery of research and development costs		(55	)			(55	)			(165	)			(165	)
Recovery of investment tax credits		(205	)			(166	)			(568	)			(495	)
Depreciation of plant and equipment		34				25				99				91
Amortization of intangible assets		266				273				783				840
Interest expense on short-term debt		47				56				200				184
Interest expense on long-term debt		92				53				222				178
Foreign exchange (gain) loss		(34	)			(272	)			(164	)			(229	)
Restructuring expenses		-				-				195				-
Total expenses		4,335				4,424				13,724				15,002
Earnings before income taxes		1,574				775				4,274				2,836
Current income tax expense		15				14				55				(10	)
Deferred income tax expense		916				623				2,591				1,802
Total income tax expense		931				637				2,646				1,792
Net earnings	$	643			$	138			$	1,628			$	1,044
Attributable to:
Non-controlling interest	$	(4	)		$	(16	)		$	(21	)		$	(34	)
Equity holders of FTG	$	647			$	154			$	1,649			$	1,078
Earnings per share, attributable to the equity holders of FTG
Basic	$	0.03			$	0.01			$	0.07			$	0.05
Diluted	$	0.03			$	0.01			$	0.07			$	0.04

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
		Three months ended								Nine months ended
(Unaudited) (in thousands of Canadian dollars)		August 31, 2018				September 01, 2017				August 31, 2018				September 01, 2017
Net earnings		$	643			$	138			$	1,628			$	1,044
Other comprehensive income (loss) to be reclassified to net earnings
in subsequent periods:
Foreign currency translation adjustments			(166	)			(2,424	)			(210	)			(1,611	)
Net unrealized (loss) gain on derivative financial instruments
designated as cash flow hedges			(420	)			2,983				(551	)			1,839
Tax impact			105				(746	)			138				(460	)
			(481	)			(187	)			(623	)			(232	)
Total comprehensive income (loss)		$	162			$	(49	)		$	1,005			$	812
Attributable to:
Equity holders of FTG		$	233			$	27			$	1,050			$	874
Non-controlling interest		$	(71	)		$	(76	)		$	(45	)		$	(62	)

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
Nine months ended August 31, 2018					Attributed to the equity holders of FTG
										Accumulated
										Other						Non-
(Unaudited)	Common		Preferred		Retained		Contributed			Comprehensive						controlling			Total
(in thousands of Canadian dollars)	Shares		Shares		Earnings		Surplus			Income (Loss)			Total			interest			equity
Balance, November 30, 2017	$	19,295	$	2,218	$	8,812	$	8,384		$	187		$	38,896		$	1,214		$	40,110
Net earnings		-		-		1,649		-			-			1,649			(21	)		1,628
Stock-based compensation		-		-		-		222			-			222			-			222
Common shares issued on exercise of
share options and PSU's		28		-		-		(8	)		-			20			-			20
Foreign currency translation adjustments		-		-		-		-			(186	)		(186	)		(24	)		(210	)
Net unrealized gain (loss) on derivative financial
instruments designated as cash flow hedges, net of tax impact		-		-		-		-			(413	)		(413	)		-			(413	)
Balance, August 31, 2018	$	19,323	$	2,218	$	10,461	$	8,598		$	(412	)	$	40,188		$	1,169		$	41,357
Nine months ended September 01, 2017					Attributed to the equity holders of FTG
										Accumulated
										Other						Non-
	Common		Preferred		Retained		Contributed			Comprehensive						controlling			Total
(in thousands of Canadian dollars)	Shares		Shares		Earnings		Surplus			Income (Loss)			Total			interest			equity
Balance, November 30, 2016	$	19,051	$	2,218	$	7,543	$	8,381		$	443		$	37,636		$	443		$	38,079
Net earnings		-		-		1,078		-			-			1,078			(34	)		1,044
Stock-based compensation		-		-		-		99			-			99			-			99
Common shares issued on exercise of
share options and PSU's		204		-		-		(158	)		-			46			-			46
Foreign currency translation adjustments		-		-		-		-			(1,583	)		(1,583	)		(28	)		(1,611	)
Net unrealized gain (loss) on derivative financial
instruments designated as cash flow hedges net of tax impact		-		-		-		-			1,379			1,379			-			1,379
Contribution from non-controlling interest		-		-		-		-			-			-			824			824
Balance, September 01, 2017	$	19,255	$	2,218	$	8,621	$	8,322		$	239		$	38,655		$	1,205		$	39,860

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
		Three months ended								Nine months ended
(Unaudited) (in thousands of Canadian dollars)		August 31, 2018				September 01, 2017				August 31, 2018				September 01, 2017
Net inflow (outflow) of cash related to the following:
Operating activities
Net earnings		$	643			$	138			$	1,628			$	1,044
Items not affecting cash:
Non-controlling interest share of net loss (earnings)			4				16				21				34
Stock-based compensation			74				75				222				99
(Gain) on disposal of plant and equipment			(2	)			(3	)			(2	)			(21	)
Effect of exchange rates on US dollar debt			69				(547	)			139				(482	)
Depreciation of plant and equipment			823				717				2,366				2,174
Amortization of intangible assets			266				273				783				840
Amortization of deferred financing costs			3				3				9				9
Deferred income tax expense			488				1,370				2,060				2,481
Investment tax credits (recovery) expense			(205	)			(166	)			(568	)			(495	)
Decrease in net unrealized gain on derivative
financial instruments designated as cash flow
hedges			(360	)			1,217				(624	)			1,016
Net change in non-cash operating working capital			(837	)			(817	)			(859	)			(417	)
			966				2,276				5,175				6,282
Investing activities
Additions to plant and equipment			(481	)			(1,419	)			(1,687	)			(4,906	)
Recovery (additions) of deferred development costs, other			5				(1	)			226				115
Proceeds from disposal of plant and equipment			3				-				3				18
			(473	)			(1,420	)			(1,458	)			(4,773	)
Net cash flow from operating and investing activities			493				856				3,717				1,509
Financing activities
(Decrease) in bank indebtedness			(1,278	)			(1,177	)			(3,833	)			(1,408	)
Proceeds from long-term bank debt			-				-				1,289				-
Repayments of long-term bank debt			(501	)			(377	)			(1,428	)			(1,159	)
Funding from non-controlling interest			-				-				-				824
Proceeds from issue of Common shares			8				40				20				46
			(1,771	)			(1,514	)			(3,952	)			(1,697	)
Effects of foreign exchange rate changes on cash flow			(38	)			(539	)			(36	)			(525	)
Net (decrease) in cash flow			(1,316	)			(1,197	)			(271	)			(713	)
Cash, beginning of the period			3,797				3,636				2,752				3,152
Cash, end of period		$	2,481			$	2,439			$	2,481			$	2,439
Disclosure of cash payments
Payment for interest		$	125			$	111			$	425			$	370
Payments for income taxes		$	1			$	1			$	14			$	5